Detroit 'Grand Bargain' vote key to bankruptcy end

Article by: COREY WILLIAMS

Associated Press

June 20, 2014 - 2:00 PM

DETROIT — An effort by deep-pocketed philanthropists to save the bankrupt city of Detroit's art treasures began with a chance meeting last year and culminated Friday when Michigan Gov. Rick Snyder signed a bill authorizing millions in state help.

But all parties excited about the bill signing know that work could be for naught if the city's pensioners and workers, who are nearing a deadline for a historic vote on Detroit's plan to get out of bankruptcy, reject what has been dubbed the Grand Bargain.

"It is really not in our hands," said Rip Rapson, president of the Kresge Foundation, which has pledged $100 million toward the plan. "We fully understand that the pensioners have to make very hard decisions as to whether this is something they can support."

The state's contribution of $195 million, along with $366 million from foundations and a $100 million pledge from the Detroit Institute of Arts, would replace hundreds of millions being cut from retiree pensions, while stopping bond insurers and other creditors from forcing the sell-off of city-owned art such as Van Gogh's "Self Portrait." The money would come over 20 years, placing the value at about $816 million.

As part of the deal, the artwork will go into a charitable trust.

Retirees and city workers have until July 11 to vote on the proposal, which is included in state-appointed emergency manager Kevyn Orr's plan for Detroit's restructuring. The city filed for the largest municipal bankruptcy in history last summer, and a trial on the restructuring is set for August. Orr has said he hopes to have Detroit out of bankruptcy by the end of this summer.

"This huge amount of resources is not there if they vote 'no,' and they're much worse off financially," Snyder said Friday. "By voting 'yes,' they are going to be taking sacrifices, but hopefully they've been reduced dramatically from what they otherwise would have been, and it's something that will allow the city to come back faster and better."

In May, Orr said early ballots showed workers and retirees supporting the plan by about 2 to 1. His spokesman, Bill Nowling, said Thursday that they cannot release detailed numbers, but "are encouraged by the voting activity."

The 32,000 retirees and current and former city workers would see base pension cuts of no more than 4.5 percent under the plan instead of as much as 26 percent. Despite pressure to vote yes, some retirees insist that bankruptcy should not be a reason to break the state constitutional protections of public pensions. They would prefer to take the fight to a higher court, even if Detroit is broke and the pension funds are struggling.

Retiree Mary Highgate, who plans to return her ballot July 1, believes Orr's plan will proceed regardless of the vote result.

The financial contributions from the foundations, state and museum also mean little to her because Highgate doubts that concern for retirees is the true motivation.

"All they care about is the art," she said. "Do you really think they care about the little people? Have they ever?"

The philanthropic support may never have played into the proceedings if Community Foundation for Southeast Michigan President Mariam Noland had not bumped into Detroit federal Judge Gerald Rosen last year at a downtown deli.

Rosen, appointed by bankruptcy Judge Steven Rhodes to head mediation efforts, told Noland about his task.

"And she said, probably as a throwaway line, 'Let me know if there's anything we can do to help,'" Rosen said.

Rosen said he gave Noland details of his plan. "Within three weeks we had 13 foundation leaders," he said.

The group included Kresge, the Kellogg Foundation and the New York-based Ford Foundation, which pledged $125 million.

"Serendipity was in our favor," Ford Foundation President Darren Walker said. "This is unprecedented in the history of American philanthropy that this number of major institutions would be galvanized to help solve the challenges of a once-great American city."

By comparison, foundations gave $550 million — nationally — between 2008 and 2012 to programs and causes related to America's economic crisis, said Lawrence T. McGill, vice president for research at the New York-based Foundation Center, which oversees philanthropy research.

"It's hugely significant and different from the kind of giving we usually see on a kind of one-time basis," McGill said. "Foundations have missions and they stick to their missions."